International Financial Reporting Standards Desk Reference Overview, Guide And Dictionary

INTERNATIONAL

FINANCIAL

REPORTING

STANDARDS DESK

REFERENCE

Overview, Guide,

and Dictionary

Dr. Roger Hussey

Dr. Audra Ong

John Wiley & Sons, Inc.

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INTERNATIONAL

FINANCIAL

REPORTING

STANDARDS DESK

REFERENCE

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INTERNATIONAL

FINANCIAL

REPORTING

STANDARDS DESK

REFERENCE

Overview, Guide,

and Dictionary

Dr. Roger Hussey

Dr. Audra Ong

John Wiley & Sons, Inc.

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ISBN-13 978-0-471-71450-X

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Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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Contents

v

FOREWORD vii

PREFACE ix

ACKNOWLEDGMENTS xi

Part One

OVERVIEW: STANDARD SETTING

NATIONALLY AND GLOBALLY

CHAPTER 1 The Growth of National Standards 3

Early Developments 3

The Advent of Regulation 5

CHAPTER 2 Developing International Accounting Standards 8

The Emergence of National Similarities 8

The Impetus for Global Standards 10

The International Accounting Standards Committee 11

CHAPTER 3 The International Accounting Standards Board 15

Formation of the IASB 15

Structure of the IASB 17

Funding and Operation of the IASB 18

Enforcement 20

The Path to Convergence 21

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CHAPTER 4 Internationalization and the G4+1 Countries 23

Introduction 23

Australia and New Zealand 24

Canada 26

United Kingdom 27

United States 30

CHAPTER 5 Different Views of Convergence 33

Introduction 33

Japan 34

Malaysia 35

People’s Republic of China 36

Taiwan, Republic of China 37

Islamic Finance and Standard Setting 38

CHAPTER 6 Responding to Internationalization 41

Progress and Problems 41

Effects and Action 43

CHAPTER 7 The Role of the Accountant 49

The Ripple Effect 49

The Main Changes 50

The Link with Corporate Governance 51

Final Check 53

Bibliography 54

Part Two

GUIDE TO INTERNATIONAL FINANCIAL

REPORTING STANDARDS

Introduction to the Guide 59

Framework for the Preparation and Presentation

of Financial Statements 65

Summary of Individual Standards 71

Part Three

DICTIONARY

How to Use the Dictionary 181

Dictionary 183

APPENDIX A List of Acronyms 359

APPENDIX B Accounting Standard Setting Bodies 367

INDEX 377

vi • Contents

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Foreword

vii

The effort to achieve a single set of global accounting standards has gained

significant momentum during the past three years. The logic behind the devel￾opment of a single set of high-quality global accounting standards for the

world’s integrating capital markets has been evident for some time. The col￾lapse of Enron and other corporate failures in the United States and elsewhere

have led to the reevaluation of existing national and international accounting

practices and has served as a catalyst for work being undertaken at the Inter￾national Accounting Standards Board (IASB) in conjunction with national

standard setters throughout the world.

Increasingly, in recognition of the integrating nature of the world’s capital

markets, national authorities are opting for an international approach to ac￾counting standards. In 2005, some 92 countries throughout the world will re￾quire or permit the use of international financial reporting standards (IFRSs),

as promulgated by the IASB.

Nowhere is the embrace of high-quality accounting standards possibly

more significant than in Europe and Asia. Most countries, however, are begin￾ning to experience the influence of IFRSs in their everyday business.

In Europe, a single economic market would be impossible to operate with

25 countries using 26 different methods of accounting as at present. (Only

Ireland and the United Kingdom use the same accounting methods, and some

countries allow either or both U.S. GAAP and international standards.)

The Asian financial crisis of the 1990s demonstrated the central role that

accounting plays in globalizing capital markets and the potential devastating

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effects that diminished confidence in financial reporting could have in slowing

economic development. The stakes of adopting a strong financial reporting

infrastructure are great for emerging economies, because these economies

cannot reach their full potential without participation in global markets and

without continuing inflows of direct investment.

Reaching the ultimate goal of having a single set of accounting standards

worldwide, however, still faces significant barriers. These include a full under￾standing of the terms used in their particular context and the differences in

language. These are problems that the authors of this volume, Dr. Roger

Hussey and Dr. Audra Ong, understand well. The IASB, located in London,

sets its standards in English and considers the English language standards the

official set. It is evident that jurisdictions throughout the world may wish to

apply the standards translated in their own language. Without quality in

translation, we will risk losing consistency in application of the standards.

The IASB has worked to expand its translation resources to improve the qual￾ity of the standards provided in other languages, but there is always more

work to be done.

Therefore, I welcome this important contribution from Dr. Hussey and Dr.

Ong. This volume marks a significant step forward to improving access to in￾ternational standards for those whose native language is not English and for

English speakers. This book is written by authors who clearly understand the

challenges facing all who seek to understand and apply international stan￾dards. I commend it to you.

Sir David Tweedie

Chair of the International

Accounting Standards Board

London, United Kingdom

December 2004

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Preface

ix

The world of accounting and finance has been going through monumental

changes in recent years. At the international level, there have been intense ef￾forts to establish credible and transparent methods for measuring and com￾municating business financial results. Key factors contributing to increased

scrutiny on accounting are the high-profile financial frauds and scandals that

received so much media attention. Another key factor is that the increasing

complexities of business in today’s high-tech, global economy require new ac￾counting approaches.

More and more companies today are doing business on an international

scale, creating a need for accountants, executives, and organizations in differ￾ent countries to reach agreement on accounting rules and standards. The ac￾counting profession has responded by establishing international accounting

and financial reporting standards, and substantial progress has been made to￾ward international acceptance of these standards.

If you are a practitioner, manager, or student, or are involved in business in

any way, this book will be invaluable. It provides an overview of the Interna￾tional Accounting Standards Board, including a guide to the standards issued

as well as a comprehensive dictionary of key international accounting, report￾ing, and finance terms.

This book consists of three parts and two appendices. The first Part describes

the growth of national accounting standards setting, the events leading to the de￾sire for international accounting standards, and the organizational structure,

funding, and operation of the IASB. It concludes with an examination of the

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changes that must be implemented by organizations and countries adopting in￾ternational accounting standards and the implications for education and train￾ing, professional accounting bodies, regulators, and organizations.

The second Part, the Guide, describes the scope and main requirements of

each current standard. International Financial Reporting Standards (IFRSs)

are lengthy and complex. The Guide captures succinctly the key points of

each standard.

The third section, the Dictionary, is a comprehensive reference to words

and phrases used in the global business world. Definitions are included for

specific terms used in the international standards and are cross-referenced to

the particular standard. Appendix A consists of a list of acronyms that relate

to the various terms and definitions used in the Overview, Guide, and Dictio￾nary. In addition, a directory of national standard setters is provided as a ref￾erence in Appendix B.

It would be imprudent for any authors, particularly compilers of an inter￾national guide and dictionary, to claim that their work is the final word on a

subject. The business world is complex and constantly changing, and IFRSs

will be modified or developed in response to these changes. This Desk Refer￾ence is intended to provide a background on how the movement toward a

common language for international accounting evolved to its present state,

summarize existing standards highlighting the key issues covered, and capture

those terms and phrases that are fundamental to an understanding of the

common language of global business. We believe that readers will find this

book an invaluable reference in helping their comprehension of this language.

Roger Hussey

Audra Ong

Canada

January 2005

x • Preface

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Acknowledgments

xi

We wish to acknowledge the advice and comment we received from col￾leagues around the world. In particular, the following were most helpful in

giving perceptive opinions on Part One of the book.

Roger Adams, FCCA, Technical Executive Director, Association of

Chartered Certified Accountants (ACCA), United Kingdom

Sally Aisbitt, Ph.D., Open University Business School, England

Russell Craig, Ph.D., Australian National University, Australia

Istemi Demirag, Ph.D., Queen’s University, Northern Ireland

Rob Gray, Ph.D., St. Andrew’s University, Scotland

John Haverty, Ph.D., Saint Joseph’s University, Philadelphia, United States

Wan Nordin Wan Hussin, Ph.D., University Utara, Malaysia

Finally, we would like to thank Andrea Steele from the Faculty of Arts and

Social Sciences and Michelle Doerksen, Bree-Anne LaBute, and Alison

Scratch from the Odette School of Business at the University of Windsor for

their tireless efforts in preparing the manuscript for publication against tight

timelines.

As always, the authors take full responsibility for any errors and omissions.

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